Policy Reform for Investment - Zambia

8/6/2019 Policy Reform for Investment - Zambia

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Policy Reform for Investment:The case of Zambia

By

Chola Abel MWITWA

Director-Aftercare & Business Development Services

ZAMBIA INVESTMENT CENTRE

At the NEPAD-OECD Africa Investment Initiative on Mobilising Private Investmentin Support of Development: Laying Foundations for Sustained Progress

Brazzaville, Congo12 -13 December 2006

Le Palais du Parlement


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Introduction

The PFI is new technique that has been developed by OECD to assess thebusiness environment. It is being used to assess Zambias progress in

policy reform against 17 action points (8 dealing with investment policy

and 9 dealing with investment promotion and facilitation) of the PFI.

Zambias reform agenda started in 1991 with policy shift from command

to market based economy. The market based policy reform agenda wassupported by enactment of laws that support and protect private enterprise.

Zambias policy framework for investment was conceived and developed

outside the PFI. However the PFI is broad and all-embracing than

Zambias investment policy reform agenda.


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Rationale

It has been recognised that right policies are important in order to

accelerate economic development, forestall dereliction and reducepoverty. There is therefore need to articulate appropriate policies,legislation and regulation that support investment (i.e. rules of the game).

Governments overall economic policy framework of liberalisation wasand still is seen to be in line with the PFI. It is based on the fact thatgovernments roles in business is to provide an enabling environment forall businesses, from SME to large businesses.

Available literature now show that appropriate regulatory and institutionalenvironment is the single most important component to the countrys economic

growth strategy.

The 2005 Doing Business Report stated that measures of easing in doing businessare associated with growth in annual economic growth by as much as 2.2 per cent.

Mainly in three areas property rights, commercial justice and deregulation.


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Investment Policy as a tool for assessing the investment

climate.

Investment policy reform in Zambia started in 1991. Enactment of pro-business legislation and amendment of existing laws to

support the liberalised economic environment. income Tax Act of 1991

Investment Act of 1991

Companies Act of 1995

Export Development Act of 1994 Privatisation Act of 1993

Lands Act 1995

Securities and Exchange Act. 1994

The Zambia Revenue Act 1994

Banking and Financial Services Act 1994

The Zambia Development Agency Act of 2006

However, there are still laws that need to be harmonised such as theInvestment Act and the Immigration and Deportation Act.


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nvestment o cy as a too or assess ng t e nvestmentclimate (Contd)

Major legal and institutional reforms that have taken place;

The Government established intermediary organisations.

The Zambia Investment Centre (ZIC),

the Zambia Privatisation Agency (ZPA),

the Export Board of Zambia (EBZ),

the Small Enterprise Development Board, (SEDB)

the Zambia Competition Commission (ZCC),

the Energy Regulation Board (ERB),

the Communication Authority of Zambia CAZ),

the Securities Exchange Act (SEC),

the Patents and Companies Registration Office (PACRO) and so on.


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climate (Contd)

Progressive establishment of timely, secure and effective methods of ownershipregistration for land and other forms of property.

The Lands Act provides for property ownership by both foreign and domestic investors.Foreigners holding Investment Certificates or in which 75% shares is owned by locals canown property.

The land delivery system is being reviewed to shorten the process. The concept of land Bankis being operationalised.

Laws and regulations for the protection of intellectual Property Rights andeffective enforcement.

The Companies Act was reviewed in 1994 to make it more business friendly. It provides forregistration of businesses and regulations for intellectual property rights and enforcement.However, it is yet to be reviewed to address the liquidation processes . The system of contractenforcement exist. The Commercial Court has been established to deal with such issues.

Zambia is always assessed by UNCTAD in terms of IPR.


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climate (Contd)

Adequate and effective compensation for expropriation. Both the Constitution and the Investment Act provides for property rights.

Expropriation and nationalisation are outlawed. However should there be need for

nationalisation the law provides that two thirds majority of the National Assembly

(Parliament) agrees and the investor must be compensated at market value in the

currency of his choice.

Includes a standard clause in all Bilateral Investment Treaties that Zambia signs.

Zambia is signatory to the world Banks MIGA.

Non-discrimination as a general principal underpinning laws and

regulations governing investment

As signatory to the WTO, Zambia is committed to the principal non-discrimination.

The Investment act does not discriminate. However a new Citizens Economic Empowerment Act provides for an

Empowerment Fund which will be accessed only by economically disadvantaged

Citizens of Zambia.


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Investment Policy as a tool for assessing the

investment climate (Contd)

Investment Policy Authorities working with their counterparts in other

economies to expand international treaties on the promotion and

protection of investment.

The Ministry of Commerce, Trade and Industry spear heads Zambias investment

treaties negotiations with other countries.

Currently Zambia has signed investment treaties with 21 countries.

The treaties are not constantly reviewed.

Ratification and implementation of binding international arbitration

instruments for settlement of investment disputes.

Not very sure whether we are fully paid member of UNCITRAL.


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Investment Promotion and Facilitation (Contd)

Strategy for developing a sound broad based business environment andwithin that strategy.

The Zambia Investment Centre has corporate strategy which strategy articulateshow it would collaborate with other organisations to advocate for removal ofeconomic irrationalities in the investment environment

Moved to publicise its client charter

The Zambia Investment Centre is represented on the Chamber of Commerce whereit receives feed back for policy advocacy.

The Zambia Investment Centre sits on most Government policy formulationCommittees where it influences policy.

Existence of an Investment Promotion agency and to what extent has its structure,mission and legal status been informed by and benchmarked by international bestpractice

The Zambia Investment centre was established by an Act of Parliament in 1992. It is

broadly mandated to promote and facilitate investment by focusing on attractinginvestment and helping investors navigate the approval and business establishmentprocesses and lobbying for improvements in the investment climate.


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The structure and operational procedures were established with the help ofIDI of Ireland.

The Board of Directors is appointed by the Minister of Commerce, Tradeand Industry from both the public and the private sector. The chairpersonand vice are elected from among the private sector representatives.

Funding of the Centre and Performance indicators include newprojects registered, investment commitment values in USDollar and employment

Year No. of Projects Pledged Amount Employment

2004 123 123,500,000 7,800

2005 133 267,000,000 6,300 2006(Nov) 131 682,000,000 5,000

The Zambia Investment Center's sources of finance are CentralGovernment, donors and own income generated from fee-based services.Government grant is highly inadequate.


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Streamlining administrative procedures to quicken and reduce the cost of

establishing a new investment.

Since 1992 a number of initiatives, including the following measures

aimed at supporting the development of the Private Sector are being

implemented.

1. The Private Sector Development (PSD) Reform Programme.2. The Triangle of Hope.

3. The Millennium Challenge Account Thresh hold.

4. The Blue Book for Zambia.

The Private Sector Development Reform (PSD) Programme is Action Plan

and the implementation Framework agreed upon by both the Governmentand the Private Sector. It aims at addressing the remaining economic

irrationalities in the country.


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Mechanism for evaluation of costs and benefits of investment incentives,their appropriate duration, their transparency, and their impact on the

economic interests of other countries.

Not developed. This may be at core Zambias inability to structure an investment

incentive programme

Steps to promote linkages between foreign affiliates and local enterprises.Measures to address specific investment obstacles faced by SMEs.

The Zambia Investment Centre began promoting joint venture partnerships. Has

created a database of project profiles. The size of the local SMEs posses a challenge

in promoting linkages actives.

Government through the Triangle of Hope initiative is addressing the peculiarproblem of SME.


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International and regional initiatives aimed at building investmentpromotion expertise.

Zambia is a member of a number of regional and international organisation dealing

with investment issues such as UNCTAD, WAIPA, SADC, COMESA, MIGA and

so on.

Under UNCTAD, we benefit through such ways as Investment Policy Reviewmechanism.

Under SADC, the Zambia Investment Centre, in collaboration with ANAPI of

Congo DR and UNIDO-ITPO Paris, has sourced resources for capacity building in

joint venture structuring, analysis and negotiations for intermediary organisations.

The World Bank financed the administrative barriers study and made valuable

recommendations.

International Exchange Networks for investment promotion


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Other Investment Promotion and Facilitation initiatives

The Private Sector Development (PSD) Reform Programme.

This is a Public-Private Sector Collaborative effort meant to address the following 6

core areas;

policy environment and institutions,

regulations and laws,

infrastructure,

business facilitation and economic diversification,

trade expansion and

local empowerment.

Of particular relevancy to this round table is the reform area of business facilitation.

It entails review, rationalisation and simplification of all licensing procedures. It alsoproposed the establishment of the Zambia Development Agency to facilitate

investment by providing a first stop shop for investment in the country.


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(Contd)

Triangle of Hope Initiative

This a strategic initiative for economic development that has been adopted

by the Government of the Republic of Zambia with the support of JICA.

It is a TICAD Agenda to help Zambia attract investment from the Eastern Asia

under the South-South framework. It is modeled on the Malaysian and Far Eastern

Development Experience.

It focuses on how competitiveness can be engendered by the forces of Political

will and integrity, the Civil Service Efficiency and the Private Sector Dynamism.

Within 10 years of national unity, political will, civil service efficiency and

private sector dynamism, Malaysia became the worlds largest exporter of

electronic semiconductors.

The initiative is progressing. 11 taskforces were constituted to focus on what

needs to be done to move Zambia forward. 7 of these focused on what is needed to

make Zambia a centre of excellence for Agriculture and agro based industries,

Cotton and cotton based industries, Education, Medical and health,



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(Contd)

Information, Communication and Technology, Tourism, Banking and Finance,

AND the 4 taskforces are focused on improving the environment for investment andhelp speed implementation of projects. These are SME development, Zambia as a

Air Cargo Hub and Inland Port, Multi-facility Economic Zones and Streamlining

Government Machinery.

The Taskforces have already defined what is needed to kick start the processes of

growth. A number of their recommendations are either being supported by enabling

regulations or laws.

The Millennium Challenge Account Threshold Project

This a USAID supported initiative addressing issues of transparency, sound

economic governance by reducing barriers to trade and investment.

Through this initiative, the Patents and Companies Registration Office has already

reduced the time it takes to register a business from 9 days to 1.

The areas being addressed by this initiative are Border management and

establishment of integrity units in key institutions that facilitate investment such as

Department of Immigration.


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(Contd)

Crime and Corruption Government has heightened the fight against corruption by strengthening

institutions that fight crime and corruption such as the Anti CorruptionCommission, the Drug Enforcement Commission and creation of the Taskforce onCorruption.

Crime and corruption are elements of an investment climate that directly affectmacroeconomics. Money laundering distorts economies because it introduces

money that is not backed by production. It introduces excess money which leadsto inflation and consequently affects the exchange rate.

When money laundering is entrenched in the economy the investment climate ischaracterised as risky and investors shy away. When the economy is not attractingenough investment to induce growth, then poverty escalates.

Investment incentives Government has provided for special investment incentives in the Zambia

Development Agency Act because it views incentives as one of the ways ofreducing the cost of doing business and improving competitiveness in Zambia.


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(Contd)

The incentives would accessed by investors investing in the following 12priority economic sectors.

Floriculture (fresh flowers and dried flowers),

Horticulture (fresh and dried vegetables),

processed foods (wheat flour and other processed foods),

beverages and stimulants (tea and tea products, coffee and coffee products),production and processing of the following products in the textile sector (cotton,cotton yarn, fabric and garments ),

Manufacturing of the following engineering products (copper products, iron ore andsteel, cobalt, and other engineering products),

Beneficiation of phosphates and any related material into fertiliser,

Beneficiation of rock material into cement,

Production and processing of raw timber into wood products,

production and processing of the following products in the leather sector (cattlehides, crust leather, leather products),

Building of mini-hydro power stations and education and skills training.


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Conclusion

We have a programme to remove all irrationalities in our economy so as tomake it easy for investors to establish and operate their businesses though itis not as comprehensive as PFI.

Governments can influence the investment climate through the impact oftheir policies and laws. Good policies and laws that improve investment

climate and countrys growth prospects. Our experience has shown that with a little bit of reform in regulatory

reform, investors show interest. The Zambia Investment centre hasrecorded an increase in both the number of projects and value of investmentcommitment for the last three years.

This roundtable should help suggest or articulate policy measures thatwould help place Africa at an advantageous position. Africa is notattracting enough investment to induce such rates of growth to attachpoverty head on..


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END

Documents

Policy Reform for Investment - Zambia